I have a commentary on the Time Magazine article coming this week — I find it is both inaccurate and misleading — but meanwhile, here is Jim Bianco’s take on it:


1. Time Magazine – The Case Against Homeownership

September 6, 2010


Homeownership has let us down. For generations, Americans believed that owning a home was an axiomatic good. Our political leaders hammered home the point. Herbert Hoover argued that homeownership could “change the very physical, mental and moral fiber of one’s own children.” Franklin Roosevelt held that a country of homeowners was “unconquerable.” Homeownership could even, in the words of George H.W. Bush’s Secretary of Housing and Urban Development (HUD), Jack Kemp, “save babies, save children, save families and save America.” A house with a front lawn and a picket fence wasn’t just a nice place to live or a risk-free investment; it was a way to transform a nation. Houses owned by the people who lived in them, we believed, created social and financial stability — more-involved citizens, safer neighborhoods, kids who did better in school. No wonder leaders of all political stripes wanted to spend more than $100 billion a year on subsidies and tax breaks to encourage people to buy.”


2. Jim’s Comment:

The TIME Magazine indicator was popularized by the Wall Street legend Paul Montgomery of Universal Economics.   Paul argues that a TIME Magazine cover signifies a peak in momentum but the price peak could be as many as 12 months away.  In the case of the 2005 bullish cover about housing, this was exactly correct.  Year-over-year changes in home price indices were near a peak in the summer of 2005 and the high in prices occurred a year later.  The cynic would say a TIME Magazine cover marked the last rush of “top buyers.”

So how do we interpret the current cover above?  The momentum low (year-over-year change) has probably occurred, but prices could languish and even drift (not plunge) lower over the next year before a rebound.  In other words, looking back after five years (not one year) , we expect the “rethinking homeownership” cover will be as ill-timed as the “Home Sweet Home” cover in 2005.

Click on chart for larger image


3. Time Magazine – America’s House Party
June 13, 2005


“Ah, the blistering real estate market, where dreams of big bucks come wrapped in aluminum siding, and you can get a three-bedroom ranch house with your hair extensions and a mortgage with your Grilled Stuft Burrito. The stock market may be dragging, but home prices are soaring, fueling a national obsession with real estate. Your house is now your piggy bank, ATM and 401(k). House gawking is a hobby; remodeling, both entertainment and an investment. Folks brag about having bought their home in the ’90s the way they used to brag about having bought Microsoft in the ’80s. Even if you’re not contemplating buying or selling anytime soon, the amazing lift in home values is changing the way we think about the roofs over our heads. Real estate isn’t so much about nesting today as it is about nest feathering.

Category: Contrary Indicators, Psychology, Real Estate, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

24 Responses to “Tale Of Home Prices Told Through Covers Of TIME”

  1. Bob A says:

    written by idiots.. for idiots.. doesn’t do any good to tell them.. they won’t listen.

  2. machinehead says:

    Ah ha ha ha … thank you, clueless Time magazine goofballs!

    Pimp my house!

  3. dead hobo says:

    I have to go with you on this one. Everyone needs somewhere to live and things like the screaming drunk or barking dog upstairs will never be good. A few more months and a little more price drop and the cover will change to “housing — bargain of the century and the best ones are nearly gone.”

  4. AJB says:

    After anticipating at end of August that a cover like this one might be coming I was still amazed to see it. I think my “Home Shi**y Home” title was punchier than the actual, though.

    Pardon my indulging in some self-congratulation…but anyway this is where it ends since, as also anticipated, I’ve not gotten a very big piece of the subsequent rally.

  5. goldfinger says:

    I saw the June 2005 cover in August 2005 at the barber shop. Before Thanksgiving I sold my home in Florida, the home in San Fernando valley I had bought for my ex wife (and kids) and a condo I was renting out which was in Studio City. Three properties-my complete RE portfolio. I cleared a bundle. I own no RE now. We have rented ever since .

  6. Thor says:

    goldfinger – lucky duck! I bought when you sold. Good thing I have no intention of selling my home anytime soon.

  7. Leaving aside the question of homeownership, has anybody ever really studied the accuracy of magazine covers? I don’t mean select a few notable datapoints and draw conclusions. I mean look at magazine covers week by week, over the course of years and determine if there is any real correlation to what actually happens in the world?

    My own observation is that we’re quick to trot out a few obvious and egregious examples and draw conclusions from them, while ignoring the other 99.999%.

    As to homeownership, I think the notion that homeownership is dead is wrong, but so is the notion that it’s a universal good. In think the biggest change is not in whether homeownership is good, but rather in what kinds of homes and what areas make sense. I believe that there will be lots of areas that will do well. I also believe that many of the areas that got built out during the late stages of the bubble — far from jobs, expensive to get to and from in a $75+/bbl world, dependent on increasingly scarce water, etc. — will turn into slums or be allowed to return to the desert. For many of them, it’s already happening, as this article shows: http://articles.latimes.com/2010/mar/30/business/la-fi-hemet30-2010mar30

    To my mind, this is what will take a long time to work out: It’s not that homeownership in general makes no sense, it’s that many of the specific homes that are owned, and the communities they are in make no sense. There is nothing holy about the suburban house with two cars and a white picket fence, and many of the people who bought into that dream most aggressively in recent years have been hammered to the point where they are never likely to recover.

  8. JustinTheSkeptic says:

    Three cheers for supporting home prices! Now the people who might have been able to buy, still can’t. Thanks all you back-slapping dong-sucking politicos! We save, we wait and watch the historical prices of homes go parabolic to the upside, knowing (in vain) that prices have to overshoot to the downside like in every other normal time and you say not this time because my buddies on wall street won’t blow their wads on me and my campaign come re-election. Oh! don’t you just love do-me-up-the-ass-democracy!!!

  9. ashpelham2 says:

    I think the people who consistently tell us that renting is almost always better than owning forget the fact that old people gotta have someplace to live too.

    Seriously, the whole idea behind paying a mortgage, to me, is for the mortgage to one day END, roughly around the same time I retire, so I don’t have to pay for the place I live in anymore. And that will be a good thing, because I don’t expect to have tremendous riches in retirement accounts, nor do I expect that Social Security will be able to pay my light bill or feed myself or my then-25-year-old-live-in-girlfriend. Or pay my ex-wife the alimony I will most certainly owe her.

    Come to think of it, perhaps SHE will be living rent free in my house that I no longer have a mortgage on.

  10. Sunny129 says:

    Irrespective all the hullabaloo about TIME’s cover, the fact remains that Home ownership DOESN’T MAKE ANY SENSE, at least FOR NOW, as long the AVERAGE housing value remains MISALIGNED with AVERAGE INCOME/equivalent RENTAL EXPENSES!

    Certainly it is NOT an investment or a ATM! Since 1997 the value has shot up to 200% and has declined to 30-40% (on average) and still above historic median. Add to this structural problems/changes ( globalization, labor arbitrage, persistent high unemployment, mis pricing of labor wages) in the US Economy occurring for the past 10-20 years, the future of housing is NOT good, to say the least for at least a decade or more!

  11. patient renter says:

    Perhaps it takes a TIME article like this to push everyone into the acceptance phase, which I suppose we are now entering. For that, I’m perfectly fine with seeing an article like this come around.

  12. IdiotInvestor2 says:

    Well – Time magazine cover did work as a contra-indicator in the past. But the home prices have not reverted to mean yet.

    Also the uptick that you see in the graph is due to tax credit (which is gone, and only pulled the demand forward) – and as has been pointed out on Calculated Risk – the graph is a trailing 3 month average. Price drops in August won’t make it in there yet. S&P has cautioned that seasonal adjustments are amplifying the uptick due to the tax credit.

    There are too many contra-indicators and too many people trying to be contrarians. So my contrarian view to that is, now contrarian views are not that contrarian. :-)

  13. ab initio says:

    Home prices in general are likely bottoming out as Jim Bianco has pointed out. However, for those investing in homes as an investment as opposed to a personal abode – the probability that it would be one of the better asset classes for appreciation over the next decade is low for a few reasons. One, bonds have been in a 30 year bull market. The likelihood that yields will rise over the next 2 decades is higher than they will decline creating much head-wind for price appreciation for homes. Second, historically asset classes that have busted after a massive speculative bubble take around a generation to recover. Witness that Nasdaq is still around 50% less than its peak after a decade and Japanese equities and real estate still are significantly below their 1989 peaks. Third, unless there is a significant demographic shift either through immigration or birth rates – the need for rapid growth in housing stock will be less compared to when the baby boomers were coming to the fore. Fourth, mortgage credit will be more constrained until the experience of the recent past has been forgotten.

  14. Expat says:

    Time is a horrible piece of shit. A stain on the face of American journalism. I recall reading Time back in the 80′s and finding it informative and useful. Today it cannot even be used to line bird cages since the glossy pages are not absorbent. It is written at about a fourth grade level.

    I think Time should die a long overdue death. Bring back Life magazine. At least that one was fun to read.

  15. Sechel says:

    B.R. Its that Time cover that makes me more bullish on real estate. What a contra-indicator!

  16. TakBak04 says:

    The Early Boomers are stuck in their houses…and the “Building for them…from FLA through Carolinas, and the WEST Phoenix and Nevada) are now cooling. (The Vaunted “Sun Belt States”) Those folks were not necessarily BOOMERS who drove up Retirement places in those areas…but Post WWII…(older than 55) at that time.

    The NEW WAVE doesn’t have the Pensions (and protections) that those folks who bought were counting on… Their Pensions were puny…their Savings are bing wiped out by ZERO INTEREST RATES…and they LOST BIG in their SAVINGS in the past CRASHES..particularly the Last One!…. There could be a depression in built RETIREMENT homes in those Hot SPots…if you can’t sell your house in Cleveland, Upstate NY or many other places that folks live (follow IBM and JNJ and PHARMA community Retirees) throught the past 20 years and you will see that there’s just NOT the BOOM there as with the retirees before who had “leg up” on Pensions and Savings…which are now (even for them) dwindling with the Financial Meltdown.

    How are the Sun Belt Boom “Sun Cities” and “Golf Resorts” for the “Oldies” ever going to recover from this…with the early Boomers Scared and Worried and not being able to sell where they “live” these days…and think about the middle and late boomers as they CYCLE THROUGH.

    There’s going to have to be a CHANGE in our Lifestyles and Expectations and that affects everyone behind them. It might be a POSITIVE for STAY WHERE YOU ARE…and GROW the COMMUNITY or lead to AGEISM WARFARE like we see with folks resentful of those who paid into Social Security as if it was Life Insurand or Health Policy…and Now Govt. wants to take it away from them and the Younger CHEER THEM ON…being resentful against the Oldies rather than the POLICIES of GOVT and PRESIDENTS who took away the Youngies earning power…along with reducing the income, pensions and job security of those ahead of them.

    Interesting times Coming.

  17. JustinTheSkeptic says:

    What the Fool, are todays Americans a bunch of bend over slaves willing to take everything? Or have the people in power figured out just “how much to twik us,” so that we are not going to say a thing? SAVE THE DEVIL, he can take a couple of days off! He’s got the American System working for him front/line/sinker!

  18. louis says:

    It does not make sense if you bought from 2004-07.

  19. In fairness to Time, the paragraph you quote from the 2005 article gives a slightly misleading impression. The article didn’t tell readers that real estate prices could only keep rising. I wouldn’t compliment the article by calling it “balanced,” but it was at least wishy-washy. The article did acknowledge the real possibility that the real estate boom could end up like the tech boom. Not that I relsih the idea of defending Time magazine, just pointing out that its writers always play it safe and noncommittal.

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